Musings from an overworked translator

Foreign bank accounts and taxes June 12, 2008

After a good night’s sleep I feel well-rested and ready to the tackle the day.

I’m going to treat myself to a nice breakfast out in a few minutes, but I just wanted to talk about the importance of having a foreign bank account. Having an account in your foreign country of choice will not only save your foreign-based clients money and hassle when paying you, it will also save you money on wire transfer fees and/or foreign check charges.

A service like Paypal and Moneybookers may be convenient, but it is a lot more expensive than setting up a foreign bank account when you consider the fees involved (1% or 5% doesn’t sound like much, but when you have a EUR 5,000.00 payment it can be downright painful!)

You may also obtain more work from agencies in foreign countries. For instance, with the dollar tanking, agencies in Europe are in search of good translators here in the U.S. because they can hire translators for a lower euro word or line rate yet still keep the translators happy because the rate is higher in the long run due to the exchange rate. But the key to being able to earn euros is having a euro-based bank account.

I opened my bank account in Germany while I was living there and simply changed my address when I moved. My bank (Dresdner Bank, which bought out the Internet-based Advance Bank) has no problems mailing my bank statements to the U.S., and I am able to track my accounts, make transfers, and use my Dresdner Bank credit card here in the U.S. As far as I am concerned, online banking is one of the best inventions since sliced bread and the Internet!

One of my French translator friends was in Paris a few weeks ago and managed to open a savings account there with the help of one of her friends/colleagues, who went with her and dropped a lot of names of the people he knows at the bank, which really helped get things moving.

That is all well and good, but there are also ways that U.S.-based translators can open a foreign bank account without having to physically be in the foreign country. It’s a little extra work, but it’s really worth it. Now, I can only speak for German banks, since I have experience with them.

A good place to start is http://answers.google.com/answers/threadview?id=784503. You would open a personal account because your business is not registered with the German authorities. It’s legal to have a personal account in this case.

Several translators I know have opened an account with Postbank, Deutsche Bank, or Bank of America. The procedure is probably similar for any bank.

Get the form for opening an account online, print it out and complete it. It has to be “legitimiert” (notarized/legitimized) by a German embassy, consulate or mission and then returned by post. No initial deposit is usually required. The only hassle is having to go to the nearest German consulate to have it legitimiert.

One translator I know has had very bad customer service experiences with Postbank and found Deutsche Bank to be relatively easy to use. Their account forms can be downloaded from the Web. Also, you will need to complete forms validating that you are a foreign tax subject and provide a W-9 – the bank may be able to provide these to you in advance.

Most of us do our banking online (very secure with a TAN system) and also use a debit card here or abroad. There are several ways you can access your money:

• If you have a Postbank account, you can request a check be sent to you in USD. It takes about 10 days to arrive, slightly longer than a wire transfer, but only costs EUR 7.80 and it is a US check drawn on a US subsidiary of Postbank.
• Wiring money through your bank is not a good option! My bank takes out a sizable fee (EUR 19.50) – and intermediary banks in the middle also take a sizable chunk (last time some bank in New York took out $25 for simply forwarding the transfer). However, you can transfer the money after it accumulates into a sizable amount using a service such as XEtrade, which enables business and individuals to send, receive and track international payments and buy and sell foreign currency. XEtrade makes its money by collecting a small percentage of the money through a lower exchange rate. You transfer the money to their local bank account in Germany or wherever else they have an office, and they transfer the equivalent amount from their local bank account in the U.S. to your chosen bank account. The initial paperwork and verification process is rather annoying, but once it is set up it is a very quick and affordable option.
• You can initiate a transfer from your German bank to your U.S.account by mailing in a simple Auslandsüberweisungsauftrag. This is a special form, but you can also do it informally on your letterhead as long as the signature matches.
• You can use your bank or debit card to withdraw money at an ATM here in the U.S. It only costs EUR 4.50 through Dresdner Bank – no matter how much you withdraw. That said, I haven’t withdrawn more than $800 at a time.
• Deutsche Bank and Bank of America have an agreement in which you can withdraw money at an ATM for free. It can be a good deal if you have one in your area.
• A colleague just reported that Netbank (http://www.netbank.de/nb/) is an option. It was apparently quicker to do the identification process while in Germany but you can also take care of it here in the US (notary public, etc.).
• I sometimes let the money accumulate and rely on it when I am overseas, which minimizes my “vacation” expenses. That way you don’t have to worry about the weak dollar while in Europe.

Having a foreign bank account gives potential clients the (accurate) impression that the translator has regular dealings with that country and gives them one less administrative task to worry about. And that is truly money in the bank!

P.S. One important note: you should always declare your foreign income on your tax returns! My tax consultant tells me as long as you do not have $10,000 in a foreign bank account you do not need to declare that you have a foreign bank account (I’m not a tax consultant – I’m merely repeating what my consultant told me!). But you do need to report your foreign income. It simply isn’t worth the aggravation, and one should never try to cheat Uncle Sam. I track all my income on an Excel spread sheet (four worksheets – one for each quarter). Column A is for payment in euros, Column B the exchange rate that day, Column C the total or converted total in dollars, Column D the invoice number, Column D the client name, and Column E the date paid. I total up the dollar amount and set aside 20% for my estimated quarterly tax payment. Preparing my taxes is a breeze because I simply print out the Excel spread sheet and hand it to my tax consultant. But I digress…

[July 16, 2008: If you are looking for a German bank, Expatica has a very good article that compares the different German banks and the various services they offer.]